Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: (A) Whether "the construction of a building, road, dam, bridge or similar structure", as described in paragraph 1 of IT-92R2 can be considered to include the demolition of a building or a factory to be entitled to use the completed contract method.
(B) Whether a non-resident company operating through a Canadian branch, is entitled to use the completed contract method.
Position: (A) Yes; (B) Yes, the taxable income earned in Canada, could be calculated using the completed contract method as indicated in the IT-92R2 provided that all the necessary preconditions are met.
Reasons: (A) "construction" is a very general term that can include demolition for the purpose of the IT-92R2. (B) The Act
XXXXXXXXXX 2009-031642
Anne Dagenais
December 17, 2009
Dear XXXXXXXXXX :
Re: Income of Contractors
This is in response to your e-mail dated April 3, 2009 asking whether a contractor engaged in the demolition of a building or factory could use the completed contract method described in Interpretation Bulletin IT-92R2, Income of contractors ("IT-92R2"). You also asked whether a non-resident company operating through a Canadian branch is entitled to use the completed contract method.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.
Subsection 9(1) of the Income Tax Act (the "Act") requires a taxpayer to report income when the amounts are earned. In addition, paragraph 12(1)(b) of the Act requires a taxpayer to include in income for the year any amount that becomes receivable in respect of services rendered in the course of a business in the year, even when the amount or any part thereof is not due until a subsequent year. However, as outlined in IT-92R2, any prime contractor or subcontractor who is engaged in the construction of a building, road, dam, bridge or similar structure, in circumstances such that title thereto vests in a person other than the prime contractor or the subcontractor as it is constructed, would be entitled to use the completion method of reporting contract revenue if certain conditions are met.
In our view, a contractor engaged in the demolition of a building or a factory as part of a larger re-construction project would fall within the scope of the position in IT-92R2 on the basis that "construction" is a very general term that can include demolition. Consequently, the contractor would be allowed to use the completed contract method of recognizing income if all the necessary preconditions are met. Furthermore, the taxable income earned in Canada by a non-resident operating through a Canadian branch, could be calculated using the completed contract method as indicated in IT-92R2 provided that all the necessary preconditions are met.
We trust that our comments are of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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